Tuesday, June 2, 2009

Corus out to save purchase contract for Teesside plant

S Kalyana Ramanathan / London June 03, 2009, 0:23 IST

CEO Kriby Adams expected to meet members of the international consortium of buyers who had walked out of a 10-yr contract.

Kriby Adams, CEO of the Tata Steel-owned European steel company Corus, is expected to meet members of the international consortium of buyers who had walked out of a 10-year contract to buy from Corus’ North-East Teesside plant.

Adams will initiate a new round of discussion to avoid the plant’s closure, which could potentially kill 2,000 jobs in the company.

The Corus chief is expected to meet the consortium members in Seoul, South Korea where one of the buyers Dongkuk is based. This developments comes at a time when Corus has already initiated legal proceedings to ensure that the consortium

honours the contract which will end in 2014. A Corus spokesman refused to confirm or deny Adams’ plans to meet the consortium members later this week.

“I will be careful not to use the word re-negotiations. However, Corus has always maintained that it is open for discussion,” he said.

Early last month, the consortium of four buyers — Marcegaglia of Italy, Dongkuk of South Korea, the Swiss-headquartered Duferco and Alvory of Uruguay — had decided to stop buying steel from the Teesside plant due to a fall in the global prices of steel.

The consortium had signed a deal with Corus in 2004 to buy up to 78 per cent of the plant’s output, stretching into 2014.

The loss of this contract forced Corus to announce earlier that it would be left with little choice but to temporarily shut down this plant.

The termination of the contract by the consortium members had triggered a political wave in UK that has, so far, seen Prime Minister Gordon Brown, Business Secretary Peter Mandelson and Redcar (where the Teesside plant is located) Labour MP Vera Bair voicing their support for Corus. Bair visited Italy last month to meet the leader of the consortium Antonio Marcegaglia.

It has been widely reported that two of the members of this consortium might be willing to buy the Teesside plant which could potentially avoid the job losses.

On March 29, Tata Steel UK, a 100 per cent indirect subsidiary of Tata Steel and the holding company of Corus, had received lender approval to reset the covenants in its £3.7-billion acquisition-related senior debt facility. The lenders had voted unanimously in favour of the company’s proposal to reset the covenants.

As part of the agreement reached with the banks, earnings-related covenants will largely be suspended till March 2010 and will then resume with significantly higher flexibility than in the case of the original covenants. It has also been agreed that there will be no increase in the current level of interest costs for the remaining life of the loan.

The revised covenant package does not involve any additional finance from the lenders or rescheduling of its debt-servicing commitments. Further, Tata Steel will inject £425 million into Tata Steel UK in a phased manner, of which around £200 million will be used to prepay debt and de-leverage the European balance sheet

Corus is Europe’s second-largest steel producer with annual revenues of more than £12 billion and a crude steel capacity of about 20 million tonnes. Corus is a subsidiary of Tata Steel, one of the world’s top ten steel producers.

The Indian conglomerate had bought Corus in 2007, taking the total crude steel making capacity of the group to 28 million tonnes and the number of its employees to approximately 82,700 across four continents.